people these means of transportation are "boomed for all they are worth," a terrible inflation ensues, and lines are built right and left, often without the slightest regard for their necessity. In each of the years 1870, 71, and '72 the mileage was increased more than ten per cent. as a result of the "general boom" that set in soon after the War of Secession was concluded. In 1882 and 1883 over twenty thousand miles were completed, and in 1887 alone 12,983 miles of iron roads were built. What was the "railway craze of England compared with these efforts to increase the extent of the American railroads? Within three years new lines were built in America which in mileage exceeded the entire system Great Britain constructed in half a century!

The results of the rapidity with which the American railway system has been built are obvious. There can be no doubt that it gave a powerful impetus to the development of the country, that but for the rapid construction of railroads the United States would not be what she is to-day, that the amazing prosperity of the republic is primarily due to the iron arteries of trade which gridiron her fertile soil. But there can be as little doubt that there were also less satisfactory consequences. The gain resulting here was offset by loss yonder. What Mr. C. F. Adams calls "the era of construction" in some respects was also a period of destruction. Large fortunes were made, but it was at the cost of numerous smaller ones. The country gained wealth, but it lost credit. Together with the era of construction dawned an era of commercial immorality, of corruption, fraud, swindling and dishonesty such as is not likely to be seen again. Useful employment for vast sums of money was found, but an amount almost equally formidable was wasted, though it might have been employed elsewhere with better results. There were "booms" and large gains; but in their wake followed depression of trade and commercial disaster. There came railways which were needed, but there also came lines

which were not needed, and therefore hurtful. Above all there came an overdose of competition.

There is nothing, not even frauds, which for capitalists who invested money in these enterprises has been more disastrous than the excessive competition which has reduced rates and profits to such a phenomenal extent. Competition, as I remarked before, is due chiefly to two causes, namely to an over-estimate of the coming demand for transportation and of the development of the country, and to the fact that the building of a road was profitable to those who undertook it. But causes, at least with regard to the purpose of this chapter, are less important than effects, and as to the latter, nobody doubts that competition is responsible for the bad condition which the affairs of numerous companies got into. To some extent, and in some parts of the States, the requirements of business are growing up to the capacities of the railroads, as, for instance, in the States of New York and Pennsylvania. But as a rule railways are still too numerous to be profitable, and the supply of facilities for transportation is greater than the demand. The anthracite coal district, for instance, could get on very well with three fourths of its railroads. The Northwest could have reached its present stage of development with fewer railways, and no mean portion of the lines of either the St. Paul or NorthWestern could be broken up without very serious results to the community. The Burlington, Rock Island, Missouri Pacific, and Atchison Companies also have too many lines serving the same region, although the country is gradually growing up to them. Four Pacific roads-the U. P., N. P., Great Northern, and Canadian Pacific-offer much more transportation than the Pacific Northwest requires, and still there are rumours of more roads to the Pacific Coast, while throughout the West we find indications that the craze for building competing lines has not entirely subsided. For instance, the Chicago, St. Paul and Kansas City RR., a railway started in 1886, was acknowledged to be built

to compete, and is absolutely unnecessary; true, it does a fair business, but the other roads get so much less; and it forced a new partner into a firm which already found it difficult to sustain its senior members.

It can cause little wonder that under such circumstances competition soon became hurtful to the investor. Where the supply of transportation was so much in excess of the demand. its price could not but fall to a point at which adequate profits in most cases were impossible, and rates necessarily fell to a level which rendered the earning of adequate returns upon capital an impossibility to many companies. Yet it should not be overlooked that competition, even where it existed so excessively, had its compensating consequences. One of the most prominent among its salutary effects was that it contributed substantially to the growth of the country. If less railways had been built, the States, and notably the West, would never have advanced with such rapid strides, for it has been shown that without low rates, the result of competition, agriculture would be impossible in many regions flourishing with low transportation charges; and thus competition actually made business. It placed the Western farmer in a position to compete in the world's markets, and gave birth to scores of industries, great and small, thereby causing an increase in the volume of traffic which in a measure has offset the effects of the universal and remarkable decline in rates upon earnings. Further, competition improved trains and passenger as wel as goods service, and thereby stimulated to travel. It alsol perfected the Americans in the art of moving freights cheaply, an art in which they are unexcelled. Yet the compensation it offered was not absolute, and it is evident that from the shareholder's point of view competition is a nuisance, even if given in moderate doses: the investor wants a monopoly. But to the public, which wants competition, it has been a blessing, although it cannot be said that in America it was an unmixed blessing. Hence, with regard to competi

tion, the investor's interests, at the same time the interests of the railroads, are diametrically opposed to those of the nation, and the optimists who hope to see better rates will do well to remember this. To uphold rates is the aim of the managers; to lower them is the aim of the nation; and the nation, which makes laws, has shown itself to be stronger than the managers, who make rates.

Of the conflicting nature of the interests of the people on the one hand, and of the railways on the other, there has been no stronger proof than the successful opposition to pooling to which we have briefly referred before. The pool was a combination of railroads engaged in competitive traffic for the purpose of maintaining rates by suspending competition, and hence it was opposed to the interests of trade, which is thereby deprived of the natural advantages arising from a vigorous competition. We have seen that the public regarded pools with a great deal of apprehension and that in consequence they were forbidden first by the State Legislatures, and afterwards by the Interstate Commerce Act; but even if this had not been the case they would, in all probability, have been abolished by the railways themselves because, in spite of all arguments in their favour, they were of no real benefit to the companies, as has abundantly been shown by various writers; it may be said that pooling had no advantages for anybody except unscrupulous managers. In but very few instances did it maintain rates for any length of time. 2 When the railroads had but a small volume of business it was found that pools could give no relief; with a large traffic and in prosperous times they proved superfluous. A pool compelled strong and direct lines to divide business with weak and roundabout ones,

1 Hudson, The RR. and the Republic, p. 258-60. Swann, Notes on Amer. RR. p. 55.

2 Only three pools were fairly successful, namely the Petroleum, Anthracite and Cattle Pools, which remained in existence for some time because they were supported by their connection with private interests. Yet the losses caused by their termination probably offset all former gains, a serious decline of rates following dissolution in each case.

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certainly no just principle. It had, in fact, nothing in its favour, and was opposed to the interests both of the public at large and of the investor. It was resorted to by the railroads in the hope of increasing earnings, in the expectation that it would improve the returns upon a heavy and for the greater part fictitious capitalisation; but the attempt failed, as is demonstrated by the acknowledged fact that rate wars never were as frequent as in the times of pooling. The reason of the failure of pools is not far to seek. The adhesion of all the members of a combination is necessary to give it strength, but the dissension of one is sufficient to cause weakness, and this has been the weak point of all pools. Some "railroads boss" commenced to "bear" his stock 2 and then started "cutting" rates to influence the markets; a general demoralisation of rates followed, and, of course, whatever had been gained during a few months of successful pooling was lost during one week of cutting. To withstand the temptation of making vast sums in such an easy manner would require a nature more than human, and the result was that rate wars were of very frequent occurrence, and that American securities never were subject to heavier fluctuations than in the times of pooling. If one road started cutting, all the other members of the pool were forced to follow suit, and as a rule they made rates still lower than the original "cutter" to force him back into the pool.

These rate wars caused immense losses in a very short time. There is one instance on record where the Pennsylvania Railroad reduced the passenger fare from New York to St. Louis, a distance of over a thousand miles, to $1.00; and similar reductions were frequent. The stronger road as a rule would win the game, and the weaker one would surrender; but, meanwhile, one week of cutting counter-balanced

1 Hudson's Railroads p. 249.

2 There never were larger fluctuations in the prices of RR. securities than in 1877 and 1880, the great pool years. It is notorious that RR. Managers concerned in pools made vast fortunes in Wall Street.